Pa. court must review status of $100 million transferred out of MCare fund

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A divided Pennsylvania Supreme Court has ordered Commonwealth Court to determine whether some or all of the $100 million the state transferred from the Medical Care Availability and Reduction of Error Fund to the general fund was surplus money.

The justices said determination is critical to deciding whether the transfer was illegal.

Commonwealth Court had found that the $100 million transfer, which was authorized by the Act of Oct. 9, 2009, known as Act 50, violated the plaintiffs' vested rights by diverting funds away from the intended purpose of providing insurance coverage to health care providers and ultimately preventing those funds from being reimbursed to the providers when the MCARE Fund is eventually terminated.

Justice Thomas G. Saylor, writing for the majority, said the question of whether the $100 million constituted a surplus at the time the act was passed is essential to deciding whether the health care providers had a vested right to see that money used solely for MCARE purposes.

If the $100 million was a surplus, Justice Saylor said, the state Legislature had the authority to redirect the funds to serve another governmental purpose -- particularly since some of that money originated from sources other than the health care providers, such as cigarette taxes and motor vehicle violation surcharges.

If it was not a surplus, the health care providers were entitled to have that money used solely to satisfy medical malpractice judgments against them.

Justice Saylor said Pennsylvania's MCARE Fund is actually more like a trust fund in which money is held for a specific, statutorily designated purpose.

But Justice Saylor, joined by Chief Justice Ronald D. Castille and Justices J. Michael Eakin and Seamus P. McCaffery, agreed with the state's assertion that Commonwealth Court's ruling had been based, at least in part, on the assumptions that the $100 million transfer jeopardized future MCARE Fund obligations and left a deficit health care providers may be forced to make up.

"The evidentiary record, however, is not entirely clear on this point and, moreover, includes a declaration by the insurance commissioner explaining that, due to the manner in which the fund makes payments and obtains funds, it will have enough money to fulfill all of its obligations in spite of the $100 million transfer," he said.

He directed the lower court to address the issue of how to determine when a surplus exists in the fund.

He acknowledged in a footnote the Commonwealth Court's recent finding in Hospital & Healthsystem Association of Pennsylvania v. Insurance Commissioner that the express statutory language of the MCARE Act requires the fund to factor any leftover money from the previous year into its assessments for the current year.

"How this affects the determination as to the existence and size of a surplus is to be considered in the first instance by the Commonwealth Court on remand," Justice Saylor said in the footnote.

That case, decided by the Commonwealth Court in August, is now pending on appeal to the Supreme Court.

Justice Debra Todd filed a dissenting opinion, saying the justices should hold off on ruling whether the transfer was unlawful until the issue in that case is resolved.

She said there was no reason to remand the case for a determination of whether the $100 million transfer was from a surplus in the MCARE Fund because "that court has already decided that the assessment formula leaves no surplus."

Justice Todd agreed with the health care providers that if the Commonwealth Court ruling in that case was correct, the increased assessment that health care providers received as a result of the $100 million transfer the previous year constituted a general revenue tax.

Justice Max Baer filed a separate dissenting opinion arguing that he would uphold the Commonwealth Court's summary relief grant because, regardless of whether the $100 million were surplus funds, transferring them out of the MCARE Fund impaired the health care providers' vested rights in having that money used to satisfy judgments against them.

"While the legislature may be able to amend the MCARE Act prospectively, it cannot retrospectively seize money already in the MCARE Fund at the time of the 2009 budget legislation," Justice Baer said.

C. Richard Schott, president of the Pennsylvania Medical Society, said in a news release that his organization was "encouraged by most of the majority opinion, as well as Justice Baer's dissent."

"It appears that the litigation has been narrowed to one key issue -- whether health care providers were harmed by the $100 million diversion," Dr. Schott said in the release. "We believe there was clear harm."